Pure Gold Mining raises $47.5M for Madsen

Vancouver-based junior Pure Gold Mining (TSXV: PGM, LON: PUR) has raised $47.5 million that will go a long way to push forward its flagship Madsen gold project in Red Lake, Ontario.

“This will be the equity component of a project financing package,” says Darin Labrenz, Pure Gold’s president and CEO, in an interview with The Northern Miner.

“We had an opportunity with the rising gold market and interest from a cornerstone investor that allowed us to move forward on an equity financing.”

The fundraising saw financier Eric Sprott acquire 10.2% of the company by buying 36 million units for 55¢ each, as part of a bought deal.

AngloGold Ashanti (NYSE: AU) increased its ownership stake in Pure Gold to 14.1% by picking up 11.85 million units in a concurrent, non-brokered private placement.

Each unit includes one common share and one-half common share purchase warrant to buy one Pure Gold share for 85¢ by July 18, 2022.

“We’ve got about 30% of our float held by four key strategic shareholders: AngloGold, Eric Sprott, Rob McEwen and Newmont Goldcorp [TSX: NGT; NYSE: NEM],” Labrenz says. “Once we have debt [financing] arranged and announced, the board will be in a position to make a construction decision.”

Labrenz expects the company will make an announcement by this September.

Ryan Walker, who covers Pure Gold as a mining analyst with Echelon Wealth Partners, quibbled about the timing of the financing. “They may have jumped a little early and may have got a better deal had they waited, as it looks like we’re in the early days of a major gold bull market.”

An ore transfer at the Madsen gold project in Ontario. Credit: Pure Gold MIning.

The spot gold price rose above US$1,400 per oz., as Pure Gold closed the financing.

Walker has a “speculative buy” rating on Pure Gold stock, while lowering his share price target from $1.20 to $1.05 per share, due to “higher than previously modelled share dilution.”

According to its 2019 feasibility study, the historic Madsen project will need just $95 million and 13 months to get up and running.

The study outlined 3.5 million tonnes of probable reserves grading 9 grams gold per tonne, for 1 million contained oz. gold.

Pure Gold is planning a 12-year underground operation with an 800-tonne-per-day capacity to produce an average 79,000 oz. gold per year. The company expects life-of-mine capital costs of $327 million, including pre-production and closing costs. The study pegged cash costs at US$607 per oz. gold, with all-in sustaining costs of US$787 per oz. gold.

Assuming gold prices of US$1,275 or US$1,400 per oz., Madsen has an after-tax net present value of $247 million or $326 million, and a 36% or 45% internal rate of return.

As a past production site, the project doesn’t require an environmental assessment and the property has several permits. Labrenz says some of the permits need amendments in accordance with Pure Gold’s development plan. The company expects its amended air and noise permit in August, and its amended mill/mill effluent and closure plan permits by year’s end.

The Madsen property is on the Red Lake greenstone belt — a prolific host of orogenic gold deposits. The belt is comprised of deformed and metamorphosed supracrustal (volcanic and sedimentary) rocks intervening between three granitoid batholiths.

Madsen’s namesake resource contains 6.4 million indicated tonnes grading 9 grams gold per tonne, for 1.86 million contained oz. gold. There is another 241,000 oz. gold in 889,000 inferred tonnes grading 8.4 grams gold.

Pure Gold is in the midst of a 12,000-metre drill program on the property, with plans to upgrade the Wedge deposit and test it along strike and down-plunge.

Wedge has a mineral resource estimate with 322,000 indicated tonnes grading 10.3 grams gold per tonne, for 107,000 contained oz. gold. Inferred resources stand at 307,000 tonnes grading 8 grams gold, for 79,000 oz. gold.

The Madsen property also hosts the Fork and Russet South deposits, which will see exploration activity this year, as well.

On July 29, the company announced an agreement between local First Nations.

The agreement establishes that “Pure Gold acknowledges and respects the rights, history and interests that both the Wabauskang First Nation and the Lac Seul First Nation have in the region surrounding Madsen. In turn, both First Nations acknowledge and support Pure Gold’s rights and interests in the development and future operation of Madsen.”

The deal outlines a framework for communication, cooperation and collaboration between the three parties, including permitting, employment, contracting, training, education, sustainable development and the issuance of 500,000 Pure Gold shares to each First Nation, pending regulatory approval.

Pure Gold shares trade for 62¢ apiece, giving the company a $219-million market capitalization. In the past 52 weeks the share price has ranged between 49¢ and 81¢.